Punjab loan waiver: Farmers have the last laugh in a tug of war between BJP and Congress

Punjab has announced crop loan waiver of up to Rs 2 lakh for farmers who own less than five acre of agricultural land and a flat relief of Rs 2 lakh for all other marginal farmers, irrespective of the loan amount.

It seems BJP and Congress are in a tug of war when it comes to farm loan waivers. Appeasing the farmers is their sole agenda, irrespective of cost to the exchequer.

On Monday, Punjab Chief Minister Amarinder Singh announced crop loan waiver of up to Rs 2 lakh for farmers who own less than five acre of agricultural land and a flat relief of Rs 2 lakh for all other marginal farmers, irrespective of the loan amount.

Speaking at the Assembly in Chandigarh, the chief minister noted the move would benefit 10.25 lakh farmers, including 8.75 lakh farmers up to 5 acres.

He said the decision was based on the interim report of the Expert Group headed by eminent economist T Haque which was tasked with suggesting ways and means to help the state's distressed farming community.

Singh said the government had also decided to take over the outstanding crop loans from institutional sources of the families of farmers who committed suicide in the state.

"It has also been decided to raise the ex-gratia for suicide affected families to Rs 5 lakh from the existing Rs 3 lakh," he said.

As debt relief to farmers for loans raised from non-institutional resources, the government has decided to review the Punjab Settlement of Agriculture Indebtedness Act, 2016 to "provide the desired relief to farmers through mutual acceptable debt reconciliation and settlement, which shall be statutorily binding on both the parties--the lender and the borrower."

The government has already constituted a cabinet sub-committee to review the Act, he added.

The chief minister proposed that the speaker may constitute a 5-member committee of Vidhan Sabha to visit the families of the suicide victims, ascertain the reasons for the extreme step and suggest steps to check this menace forever.

The initiative would provide double the relief announced by the states of Uttar Pradesh and Maharashtra, he said. BJP governments led by Yogi Adityanath and Devendra Fadnavis are in power in Uttar Pradesh and Maharashtra, respectively.

Fadnavis recently observed the waiver -- announced on June 11 after a widespread farmers' agitation -- would further stress the debt-ridden state, as his government would require to raise Rs 25,000 crore or more for this.

He also said decisions by Andhra Pradesh, Telangana and Uttar Pradesh to waive farmers' loans in their states led Maharashtra peasants to demand similar relief, which prompted his dispensation to announce the waiver.

The loan waiver will benefit around 86 lakh small and marginal farmers in Uttar Pradesh. Also, the waiver has fulfilled one of the biggest poll promises of BJP that if voted to power, it will waive off the farmer loans in its very first Cabinet meeting.

At Rs 36,359 crore, the loan waiver announced by the Yogi government was the biggest at that time by any state. In fact it is more than half the size of the loan waiver, announced by UPA-1 government in 2008 for whole of India. The maximum amount of loan to be waived has been fixed at Rs 1 lakh per farmer.

Economists also have cautioned that the move could encourage indebted farmers not to repay loans, deepening malaise at public sector banks already saddled with most of India's $150 billion in stressed loans. Economists at Merrill Lynch estimate that states will end up writing off debts equivalent to 2 percent of GDP - the bulk of all outstanding loans to farmers.

"The loan waivers would likely worsen the fiscal deficits and leverage levels of the state governments, unless other resources are mobilised or expenditure is controlled," said Aditi Nayar of ICRA, an affiliate of Moody's Investors Service.

"There is a significant risk that productive capital spending may end up being reduced to fund a portion of the loan waivers."